Deck 23: State and Local Taxes

Question 1

The state tax base is computed by making adjustments to federal taxable income.

Answer 1

True

Question 2

Businesses subject to income tax in more than one jurisdiction have the right toapportionment.

Answer 2

True

Question 3

Businesses engaged in interstate commerce are subject to income tax in every state inwhich they operate.

Answer 3

False

Question 4

Wyoming imposes an income tax on corporations.

Question 5

Many states are either starting to or are in the process of expanding the types of services subject to sales tax.

Question 6

Business income is allocated to the state of commercial domicile.

Question 7

The sales and use tax base varies from state to state.

Question 8

Failure to collect and remit sales taxes by a seller often results in a larger tax liability than failure to pay income taxes.

Question 9

State tax law is comprised solely of legislative authority.

Question 10

Nondomiciliary businesses are subject to tax everywhere they do business.

Question 11

The primary purpose of state and local taxes is to raise revenue to finance state and localgovernment.

Question 12

Use tax liability accrues in the state where purchased property will be used when theseller of the property is not required to collect sales tax.

Question 13

Businesses must collect sales tax only in states where it has sales and use tax nexus.

Question 14

The Quill decision reaffirmed that out-of-state businesses must have physical presence within a state before the state may require the collection of sales taxes from in-state customers.

Question 15

The National Bellas Hess decision held that an out-of-state mail-order company did not have sales tax collection responsibility because it lacked physical presence.

Question 16

All states employ some combination of sales and use tax, income or franchise tax, orproperty tax to fund their government operations.

Question 17

Physical presence does not always create sales and use tax nexus.

Question 18

Purchases of inventory for resale are typically exempt from sales and use taxes.

Question 19

All 50 states impose a sales and use tax system.

Question 20

Commercial domicile is the location where a business is headquartered and from whenceit directs its operations.

Question 21

Sales personnel investigating a potential customer's credit worthiness generally are deemed to exceed protected boundaries of solicitation.

Question 22

Delivery of tangible personal property through common carrier is a protected activity.

Question 23

Federal/state adjustments correct for differences between two states tax laws.

Question 24

The Mobil decision identified three factors to determine whether a group of companies are unitary.

Question 25

Public Law 86-272 was a congressional response to Northwestern States PortlandCement.

Question 26

Several states are now moving from a strict physical presence test towards an economic presence test.

Question 27

In Complete Auto Transit the court determined eight criteria for determining whether a state can tax a nondomiciliary company.

Question 28

A unitary return includes only companies included in the federal consolidated tax return filing.

Question 29

Businesses must pay income tax in their state of commercial domicile.

Question 30

Most state tax laws adopt the federal tax law as of a specific date in time.

Question 31

A state's apportionment formula usually is applied using some variation of sales, payroll, and property factors.

Question 32

A state's apportionment formula divides nonbusiness income among the states where nexus exists.

Question 33

The trade-show rule allows businesses to maintain a sample room for up to four weeks per year.

Question 34

Public Law 86-272 protects certain business activities from creating income tax nexus.

Question 35

Separate return states require each member of a consolidated group with nexus to file their own state tax return.

Question 36

Immaterial violations of the solicitation rules automatically create income tax nexus.

Question 37

Giving samples and promotional materials without charge is a protected solicitation activity.

Question 38

The Wrigley case held that the sale of intangibles is protected by Public Law 86-272.

Question 39

Business income includes all income earned in the ordinary course of business.

Question 40

Public Law 86-272 protects only companies selling tangible personal property.

Question 41

Which of the following regarding the state tax base is incorrect?

A) It is a necessary step in the state income tax process.
B) It is computed by making adjustments to federal taxable income.
C) It applies only to interstate businesses.
D) It is divided into business and nonbusiness income.

Question 42

The annual value of rented property is not included in the property factor.

Question 43

In recent years, states are weighting the sales factor because it is easier to calculate.

Question 44

The property factor is generally calculated as being the average of the beginning and ending property values.

Question 45

The payroll factor includes payments to independent contractors.

Question 46

The throwback rule requires a company, for apportionment purposes, to include all sales of inventory sold into a state without nexus rather than from the state from where the inventory was shipped.

Question 47

Which of the following is not a primary revenue source for most states?

A) Property taxes.
B) Severance taxes.
C) Sales or use taxes.
D) Income or franchise taxes.

Question 48

Which of the following is true regarding state and local taxes?

A) Every jurisdiction imposes a sales or use tax.
B) All states impose a state income tax.
C) The primary purpose of state and local taxes is to raise revenue.
D) Property taxes are primarily used to finance a State's general revenue fund.

Question 49

Which of the following statements regarding income tax commercial domicile is incorrect?

A) The location where a business is incorporated.
B) The location where a business is headquartered.
C) The location from which a business directs its operations.
D) None of the choices are correct.

Question 50

Most states have shifted away from an equally weighted three-factor to a heavily-weighted sales apportionment formula.

Question 51

Which of the following law types is not a primary authority source?

A) Treatises.
B) Administrative.
C) Legislative.
D) Judicial.

Question 52

Which of the following sales is always subject to sales and use tax in a state that assesses a sales and use tax?

A) Tax preparation services.
B) Food.
C) Inventory.
D) Automobiles.

Question 53

Rental income is allocated to the state of commercial domicile.

Question 54

Which of the following businesses is likely to have taxable sales for purposes of sales and use tax?

A) Mail order clothing company.
B) An online retailer of textbooks.
C) Campus bookstore selling textbooks and university apparel.
D) A local accounting firm.

Question 55

Which of the items is correct regarding a use tax?

A) Amazon collects use taxes on behalf of all its resellers.
B) States choose to implement either a sales tax or a use tax but not both.
C) Use taxes only apply when the seller is not required to collect the sales tax.
D) Use taxes are imposed by every state.

Question 56

All of the following are false regarding apportionment except?

A) Applies to both business and nonbusiness income.
B) Applies to only nonbusiness income.
C) Investment income is subject to apportionment.
D) Applies to only business income.

Question 57

A gross receipts tax is subject to Public Law 86-272.

Question 58

Most services are sourced to the state where the services were performed.

Question 59

Which of the following is incorrect regarding nondomiciliary businesses?

A) A business can be nondomiciliary in only one jurisdiction.
B) A business cannot be nondomiciliary where headquartered.
C) Subject to tax only where nexus exists.
D) Subject to tax only where a sufficient connection exists.

Question 60

Interest and dividends are allocated to the state of commercial domicile.

Question 61

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress. Lisa returns to Virginia a few weeks later to pick up the dress and drive it back to her Maryland residence where she will use the property. Assuming that Virginia's sales tax rate is 5 percent and that Maryland'ssales tax rate is 6 percent, what is Roxy's sales and use tax liability?

A) $75 sales tax to Virginia and $15 use tax to Maryland.
B) $90 to Maryland.
C) $0.
D) $75 to Virginia.

Question 62

PWD Incorporated is an Illinois corporation. It properly included, deducted, or excluded the80)following items on its federal tax return in the current year: PWD's Federal Taxable Income was $100,000. Calculate PWD's Illinois state tax base.

A) $131,000.
B) $116,000.
C) $164,333.
D) $130,833.

Question 63

Public Law 86-272 protects solicitation from income taxation. Which of the following activities exceeds the solicitation threshold?

A) Checking a customer's inventory.
B) Distribution of samples without charge.
C) Accepting a down payment.
D) Any form of advertising.

Question 64

Which of the following isn't a requirement of Public Law 86-272?

A) The taxpayer is nondomiciliary.
B) The taxpayer sells only tangible personal property.
C) The taxpayer is an intrastate business.
D) The tax is based on net income.

Question 65

What was the Supreme Court's holding in Quill?

A) An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
B) Defined solicitation for purposes of Public Law 86-272.
C) Reaffirmed that an out-of-state business must have physical presence in the state before the state may require the business to collect sales tax from in-state customers.
D) Spelled out four criteria for determining whether states may subject nondomiciliary companies to an income tax.

Question 66

Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Iowa, Michigan, Minnesota, Wisconsin, and Wyoming. It has sales personnel only where discussed.Determine the state in which Mighty Manny does not have sales and use tax nexus given the following scenarios:

A) Mighty Manny's trucks drive through Nebraska to deliver goods to Mighty Manny's customers in other states.
B) Mighty Manny has sales personnel that visit Minnesota. These sales employees follow procedures that comply with Public Law 86-272. The orders are received and sent to Michigan for acceptance. The goods are shipped by FedEx into Minnesota.
C) Mighty Manny provides design services to another manufacturer located in Wisconsin. While the services are performed in Michigan, Mighty Manny's designers visit Wisconsin at least quarterly to deliver the new designs and receive feedback.
D) Mighty Manny receives online orders from its Illinois client. Because the orders are so large, the goods are delivered weekly on Mighty Manny's trucks.

Question 67

On which of the following transactions should sales tax generally be collected?

A) Sales of woolen goods to a state without nexus delivered through common carrier.
B) Accounting services provided in Alaska.
C) Meal purchased at McDonald's.
D) Architecture plans delivered through the mail.

Question 68

Which of the following isn't a typical federal/state adjustment?

A) U.S. obligation interest income.
B) Dividends received deduction.
C) Depreciation.
D) Meals and entertainment.

Question 69

Public Law 86-272 protects a taxpayer from which of the following taxes?

A) California Franchise Tax (a net income tax).
B) Ohio Commercial Activity Tax (an excise tax with a gross receipts base).
C) Texas Margin Tax (a tax with net income, gross receipts, and capital worth components).
D) Washington Business and Occupation Tax (a gross receipts tax).

Question 70

Which of the following activities will create sales tax nexus?

A) Advertising using television commercials.
B) Electronic delivery of software.
C) Delivery of sales by UPS.
D) Sales people physically located in a state from which they only take orders.

Question 71

Which of the following isn't a criteria used to determine whether a unitary relationship exists?

A) Centralized management.
B) Consolidated return status.
C) Functional integration.
D) Economies of scale.

Question 72

Which of the following is not one of the Complete Auto Transit's criteria for whether a state can tax nondomiciliary companies?

A) Only a fair portion of income can be taxed.
B) Protected activities are exempt.
C) A sufficient connection exists.
D) Tax cannot discriminate against nondomiciliary businesses.

Question 73

Roxy operates a dress shop in Arlington, Virginia. Roxy also ships dresses nationwide upon request. Roxy's Virginia sales are $1,000,000 and out of state sales are $200,000. Assuming that Virginia's sales tax rate is 5 percent, what is Roxy's Virginia sales and use tax liability?

A) $60,000.
B) $0.
C) $50,000.
D) $10,000.

Question 74

Assume the following sales tax rates: Alaska (6.6 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (0 percent), New York (8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit?

A) $61,289.
B) $14,543.
C) $10,386.
D) $26,733.

Question 75

Bethesda Corporation is unprotected from income tax by Public Law 86-272. Which of the following characteristics creates a problem for Bethesda in states other than Maryland?

A) All in-state services are limited to solicitation in states other than Maryland.
B) Bethesda sells copier equipment and copy center services.
C) All orders are approved in Maryland.
D) Bethesda does business in Maryland and five other states.

Question 76

In which of the following state cases did the state not assert economic nexus?

A) New York with the Amazon rule.
B) Wisconsin in Wrigley.
C) South Carolina in the Geoffrey case.
D) West Virginia in the MBNA case.

Question 77

Roxy operates a dress shop in Arlington, Virginia. Lisa, a Maryland resident, comes in for a measurement and purchases a $1,500 dress that is shipped to her Marylandresidence using a common carrier. Assuming that Virginia's sales tax rate is 5 percent and that Maryland's sales tax rate is 7 percent, what is Roxy's sales and use tax liability?

A) $75 sales tax to Virginia and $15 use tax to Maryland.
B) $0.
C) $75 to Virginia.
D) $90 to Maryland.

Question 78

Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the Midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Iowa, Michigan, Minnesota, and Wisconsin. It has sales personnel only where discussed. Determine thestate in which Mighty Manny does not have sales and use tax nexus given the following scenarios:

A) Mighty Manny is incorporated and headquartered in Michigan. It also has property, employees, sales personnel, and intangibles in Michigan.
B) Mighty Manny has two customers in Wisconsin. Mighty Manny receives orders over the phone and ships goods to its customers using FedEx.
C) Mighty Manny has independent sales representatives in Minnesota. The representatives distribute ice scraper-related items for over a dozen companies.
D) Mighty Manny has a warehouse in Illinois.

Question 79

Assume the following sales tax rates: Alaska (6.6 percent), Colorado (7.75 percent), Maine (8.5 percent), New Hampshire (6.75 percent), New York (8 percent), and Vermont (5 percent). How much sales and use tax must Mahre collect and remit in Maine?

A) $13,267.
B) $0.
C) $16,319.
D) $3,053.

Question 80

What was the Supreme Court's holding in National Bellas Hess?

A) An out-of-state mail-order company did not have a sales tax collection responsibility because it lacked physical presence.
B) Defined solicitation for purposes of Public Law 86-272.
C) Reaffirmed that an out-of-state business must have physical presence in the state before the state may require the business to collect sales tax from in-state customers.
D) Spelled out four criteria for determining whether states may subject nondomiciliary companies to an income tax.